Travelers' Ratings Cut By Moody's

Moody's Downgrades Travelers' Ratings

Moody's Investors Service on Thursday gave Travelers Corp. its lowest ratings since the agency began scrutinizing the Hartford insurer four years ago.

The ratings are still investment grade, and the company is considered sound. But the downgrades -- the latest in a series -- strike another blow to a company that has been battling for a more positive image.

Travelers immediately blasted the lowered ratings as unwarranted.

Moody's still classifies Travelers as a strong company, but cited concern about the potential effect of soured real estate investments on earnings and capital growth.

The new ratings bump Travelers down into the "adequate financial security" range, which is below the categories labeled exceptional, excellent and good. The ratings are lower than what Travelers has received from other rating agencies, and are lower than most ratings held by other major Connecticut insurers.

Moody's lowered the financial strength rating on Travelers Insurance Co., a major operating subsidiary, two notches, to Baa1 from A2. Baa1 is the top of the adequate financial security range, and A2 is the middle of the good security range.

Travelers Insurance Co. is authorized to sell employer health and life insurance, individual life insurance and pension management services.

Travelers' main property-casualty insurance operations were downgraded two notches, to A2 from Aa3, which was the low end of the excellent security range.

The downgrades were not caused by deterioration of the company, but by the outlook for the nation's real estate markets, said Diane F. Jacobosky, senior analyst at Moody's.

"The ongoing deterioration of the commercial real estate markets around the nation is expected to exert additional pressure on the [investment] portfolio's performance," Moody's said in its report on Travelers Thursday.

Travelers, however, has done a good job managing its portfolio and has a good management team, Jacobosky said. "Because we view

[Baa1] as an investment grade rating, we think the company is a sound company," she said.

Travelers' main businesses have significant ability to generate profits, and the company's performance will continue to benefit from reorganizations and the resulting expense reductions, Moody's report said.

For instance, Travelers has said it eliminated about 3,000 jobs in the past two years and has trimmed annual expenses by $200 million.

"In light of the continued progress and specific accomplishments strengthening Travelers, Moody's downgrades are inappropriate and totally uncalled for," Travelers said in a written statement.

The company noted it has taken steps to boost its capital -- its financial cushion -- including a recent $300 million debt offering. Travelers had $4.5 billion of capital at March 31.

Travelers is also expected to issue as much as $400 million of preferred stock -- which Moody's rated as baa2 on Thursday. That is the middle of the adequate financial security range. Standard & Poor's has rated the preferred stock A-, the low end of the good security category.

Although Moody's is concerned about national real estate markets, "Travelers' real estate portfolio continues to perform within the range of our expectations," Travelers said.

At the end of March, $5.1 billion of the company's $14.4 billion commercial real estate and mortgage portfolio was classifed as problems. That included delinquent loans, foreclosures and loans in the process of foreclosure.

"We are a stronger company because of our capital additions," Travelers said. "We believe these [Moody's] downgrades are simply inconsistent with the financial strength of Travelers."

Moody's also lowered its rating on Travelers Corp.'s senior debt to Baa1 from A2. Moody's dropped its rating on subordinated debt to Baa2, which is the middle of the adequate category, from A3, which is the low end of the good range.

Robert Googins, Connecticut insurance commissioner, said the Moody's downgrades do not "come as any great alarm to me at this juncture," especially since rating agencies have been downgrading many insurers.

Travelers has "clearly identified its commercial real estate problems and has a serious and significant management plan on how to deal with it," Googins said.

Googins also cited Travelers for good liquidity. That means it has investments that can easily be sold so the company can meet its obligations to customers.

S&P lowered debt ratings: from A to A- on subordinated debt, and from A+ to A on senior debt.

In late April, A.M. Best Co., another major rating agency, lowered ratings on Travelers Insurance Co. and Travelers Life & Annuity to A, or excellent, from A+, which is superior -DE Updated: YY92 MM06 DD06